Fortugno v. Comm'r of Internal Revenue
| Decision Date | 26 November 1963 |
| Docket Number | Docket Nos. 69025-69029,69032-69034. |
| Citation | 41 T.C. 316 |
| Parties | ALFRED FORTUGNO, ET AL.,1 PETITIONERS, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
Harold Kamens and William A. Ancier, for the petitioners in docket Nos. 69025, 69026, 69027, 69028, 69029, 69032, and 69034.
Francis X. McCormick, for the petitioner in docket No. 69033.
Francis X. Gallagher, Scott A. Dahlquist, and Alvin C. Martin, for the respondent.
In order to forestall a jeopardy assessment by the respondent, petitioners on or about August 31, 1954, deposited $1 million with the respondent. The deposit was made prior to the issuance of both the 30-day and 90-day letters. Although the eight petitioners at the time of the deposit were aware of the aggregate amount respondent was proposing to assert against them collectively, they had no knowledge of their individual liabilities. The petitioners never requested respondent to assess their tax liabilities to the extent of the $1 million payment and never intended by the $1 million payment to waive their right to contest the correctness of respondent's determination. Held, the petitioners' remittance of $1 million at a time when no assessment or agreement existed with respect to their tax liabilities constituted a deposit rather than a payment of tax. Held, further, section 6401(c), I.R.C. 1954, has no application when a remittance is voluntary and prior to a determination of tax liability. Held, further, respondent is not estopped to deny that petitioners' remittance constituted payments of tax.
The respondent determined that petitioners were liable for deficiencies in income tax and penalties under sections 291(a), 293(b), and 294(d)(2) of the Internal Revenue Code of 1939 and corresponding prior statutes for various years extending from 1934 to 1950. The parties have disposed of all issues regarding the deficiencies and penalties and are in agreement that the petitioners have paid an amount in excess of their tax liabilities. The only issue remaining for determination is when did the petitioners' remittances constitute an overpayment. The words ‘paid’ or ‘payment’ as they appear for the most part in this Findings of Fact and Opinion are words of convenience and are not to be construed as connotating the legal effect of the petitioners' remittances.
Some of the facts have been stipulated and are found accordingly.
All of the petitioners here failed to file income tax returns for the taxable years 1934 to 1939, inclusive, with the exception of Connie M. Fortugno Ruble, docket No. 69032, who filed an income tax return for the taxable year 1939 with the collector of internal revenue for the fifth collection district of New Jersey. All of the petitioners filed their income tax returns for the taxable years 1940 to 1950, inclusive, with the collector of internal revenue for the fifth collection district of New Jersey.
On July 1, 1954, petitioner Anthony Fortugno was convicted, after trial, of income tax evasion, for filing false individual returns for 3 taxable years between 1946 and 1949, and for filing a false partnership return.
Sometime around July 4, 1954, petitioners met with their attorney and were informed by him that if they wished to avoid a jeopardy assessment against their property, they would have to pay $750,000 to the Government. The petitioners informed their attorney that $750,000 was too much and told him to offer the Government $400,000. The petitioners' attorney made the $400,000 offer to the Government, but it was rejected.
Toward the latter part of July 1954, petitioners' accountant met with the district director of internal revenue and offered to pay $500,000 to the Government in order to forestall jeopardy assessments against the petitioners. As a result of this offer, a conference was scheduled for August 11, 1954, between representatives of the Government and the petitioners.
At the outset of the meeting on August 11, 1954, the Government spokesman stated that the offer of $500,000 was not adequate and that a much larger amount would have to be offered. The petitioners and their representatives were then, for the first time, given a tentative breakdown of the petitioners' tax liabilities which the Government was preparing to assert against them at a later date. The Government spokesman then informed the petitioners that since the tax liability totaled almost $1.9 million, a deposit of $500,000 would not adequately protect the revenue. The Government representatives indicated that a pledge of $1.5 million ($500,000 in cash plus $1 million in bonds) would be more appropriate. Some discussion took place concerning the accrual of interest in connection with the amount to be paid over to the Government. 2 No agreement could be reached at this time, however, and it was decided that the respective parties should meet again later in the month.
The parties met again on August 27, 1954. The Government spokesman opened the meeting by stating that the petitioners ‘had created a jeopardy’ by closing out their bank accounts and in order to offset this the Government was demanding that the petitioners put up $1.5 million. The Government spokesman added that if the money was not put up, a receiver would be appointed to take over the family business and criminal action would be taken against the petitioners for converting assets. During the ensuing discussion the Government representatives indicated that they might accept a payment of $1 million in cash instead of the $1.5 million in cash and bonds originally demanded. The petitioners requested permission to discuss the Government's proposal during lunch.
After lunch petitioners returned to the meeting and indicated that a $1 million payment would be acceptable. However, the Government representatives refused to accept the $1 million offer unless the petitioners signed a statement which the Government would prepare. The Government spokesman also stated that time was of the essence and that the matter had to be concluded that afternoon. Although the petitioners did not want to sign the statement as prepared by the Government, they felt that unless the statement was signed and the $1 million paid, the Government would invoke the sanctions they had suggested earlier.
The statement prepared by the Government and executed on August 31, 1954, by the petitioners provided as follows:
AUGUST 31, 1954.
DISTRICT DIRECTOR OF INTERNAL REVENUE
Attached hereto are eight (8) checks drawn to the order of the District Director of Internal Revenue and dated August 31, 1954. These checks are more specifically identified as follows:
+-------------------------------------------------------+
¦Name of maker ¦Bank ¦Amount ¦
+-----------------------+----------------------+--------¦
¦Daniel Fortugno ¦Hudson County National¦$125,000¦
+-----------------------+----------------------+--------¦
¦Silvia Fortugno ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Anthony Fortugno ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Alfred Fortugno ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Arthur Fortugno ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Adeline Fortugno ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Ann (Fortugno) Camp ¦-----do ¦125,000 ¦
+-----------------------+----------------------+--------¦
¦Connie (Fortugno) Rubel¦-----do ¦125,000 ¦
+-------------------------------------------------------+
Your attention is directed to the fact that the Internal Revenue Service is now auditing the tax returns of the individuals enumerated above for years 1934 through 1950 inclusive and in anticipation of tax assessments which include penalties and interest being made, we desire to submit the attached checks amounting to one million dollars, ($1,000,000) to be credited to our tax assessments when same are finally made. It is our understanding that the payment of one million dollars ($1,000,000) submitted herewith will stop the running of interest on that amount from this date of payment.
It is further understood and agreed that the payment of one million dollars ($1,000,000), referred to above, will be applied against any unpaid liabilities of all of the above-mentioned taxpayers, or against any of them as the final determination of tax liability is made. In the event that the respective checks submitted herewith of each taxpayer toward the above-mentioned sum of one million dollars ($1,000,000), should exceed the amount of the assessments made against such individual taxpayer, the excess of such check submitted by said taxpayer will be applied toward the payment of the tax liability of any or all of the other remaining taxpayers. Under no circumstances shall any part of the amount of the one million dollars, ($1,000,000), payment made herewith be returned to the respective taxpayers if the total amount of said payment is insufficient to satisfy the tax assessments of any or all of the taxpayers mentioned herein. In the event that the aforementioned payment of one million dollars, ($1,000,000), should exceed the tax liability, when finally determined, of the taxpayers mentioned herein, then such excess over the amount required to satisfy the unpaid tax liability shall be returned to the respective taxpayers.
We also desire to direct your attention to the fact that an agreement is now being prepared in connection with the above-mentioned assessments and the terms of said agreement will be binding upon us and the government when said agreement is properly executed.
We expressly call attention to the fact that the within payment of one million dollars, ($1...
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